Short-term factors
Geopolitical tensions have been another cause of concern for investors following events in Russia and Ukraine, and in the Middle East. For China, the Occupy Central demonstrations in Hong Kong are a little closer to home.
Jan Dehn, head of research at Ashmore, believes a resolution is on the horizon.
“We think tensions between pro-democracy activists and the authorities in Hong Kong are likely to find a negotiated and peaceful resolution. Both sides have a lot to lose and therefore incentives not to let things get out of control.”
He continues: “In particular, China has great vested interests in making a success of Hong Kong, which is one of the main offshore centres for renminbi (RMB) trading, a business showcase for China and an economic powerhouse in its own right.
“Similarly, Hong Kong dwellers have higher levels of opportunity, greater wealth, and more freedom than the Chinese from mainland China.”
Elsewhere, in July this year the leaders of the Bric countries – Brazil, Russia, India, China and South Africa – announced the formation of a Brics Development Bank which has been established to fund infrastructure and sustainable development projects.
It will have $50bn of capital behind it, with $10bn contributed by each of the participating countries. A ‘contingent reserve arrangement’ which is due to be created at the same time as the Brics Bank will have $100bn at its disposal.
The majority of this will be coming from China, which is putting in $41bn, while the bank will have its headquarters in Shanghai, putting the country at the centre of this financial arrangement. If nothing else, it asserts China as a superpower capable of taking on some of the most developed economies in the world.
Longer-term prospects
In his most recent economic update, BNY Mellon’s chief economist Richard Hoey advises that behind all of the immediate risks and China is undergoing a permanent “downward shift” to a slower sustained growth rate.
He explains: “In China, we expect sustained expansion and a gradual downshift in Chinese trend growth over the coming years rather than the ‘Chinese financial meltdown scenario’ expected by more pessimistic analysts.”
In spite of its influence, however, the recent slowing rate of growth in China is causing some market jitters.
John Vail, chief global strategist at Tokyo-based Nikko Asset Management, believes that China’s economy will continue to slow faster than consensus forecasts. Although the asset manager’s global investment committee thinks that the country does not appear to be heading towards a ‘hard landing’.
In terms of investing in emerging markets more generally, Richard Titherington, chief investment officer and head of the emerging markets equity team at JP Morgan Asset Management highlights the risks.
“Many of the headwinds to emerging markets in the last year have died down, but there are still risks from a stronger US dollar and the prospect of higher interest rates from the US,” he acknowledges.
